Sunday, January 26, 2014

How to Assess Business Capability Maturity

There are two sets of business capabilities: Competitive Necessity and Competitive Uniqueness.

Organization’s capabilities are business competency to execute its strategy and deliver value to its customers. Every surviving business has certain capabilities; however, only very few high-performing businesses have a high mature level of capabilities, for not only running the business today but also competing for the future. Hence, from the management perspective, it’s important to assess business capability maturity accordingly, as say going "if you want to understand something, you have to be able to measure it,". But what are some attributes and what are the measurement scales?

Weigh on the importance of business capability: The maturity of a business capability would be based on the ability for the capability to deliver on customer needs or to achieve the desired capability outcome. Other criteria may include the importance of each capability to the enterprise; different weighting may be applied to the capabilities. Organization’s capabilities can be categorized into the competitive necessity and competitive uniqueness.

Measure values of capability: "Adding value" and "delivering on customer needs" will be higher in a capability that is more mature. How do you measure "value?" A capability's maturity should be measured by how well it adds value to the customer. It is important to remember adding value won't be the same for every company. For example, a capability may be a differentiator for one company and measured by strategic importance while another company may have a "sourced" solution as part of the maturity measure for the same capability because it's not the core to their business. Two opposite approaches but both look to add the most value to the customer.

Assess the effectiveness of capability: One way to measure "value" is by assessing the capability's effectiveness in achieving the desired outcome. This can be accomplished by measuring a) the technology impact on capability effectiveness (service availability), and b) the process impact on capability effectiveness (# of orders delivered, order cycle time), and so on... in other words, capability maturity can be measured against achievement of desired business or customer outcomes.

“Adoption rate’ as maturity attribute: Capability maturity, which attributes should be measured? Since a capability is made up of people, processes, and technology, you can use overall process maturity as one part. What are the other parts and how would you measure them? With a maturity attribute like "adoption," you can measure the percentage of business units engaging the capability on a year by year basis. As it increases, the maturity rises.

Capability maturity framework: Use a business specific capability and readiness framework with six categories: [1] Planning, [2] Process, [3] Infrastructure, [4] Human Capital Management, [5] Financial, and [6] Projects. And incorporate six themes in each capability category: (1) innovation, (2) communication, (3) motivation, (4) empowerment, (5) collaboration, and (6) leadership. The query can be customized to any unique set of business conditions.

Five-level capability maturity: Business capability contains people, process, technology, and infrastructure and it is at this level that one should assess maturity; capabilities inherit these maturity levels via business services, why not ask the business relations network (vendors, partners, clients) about their perceived value related to the core competency + service delivered + generated value, all claimed by the company in question (outside-in view versus inside-out view). And business capability maturity can be classified into five levels:
(1). Initial
(2) Managed
(3) Defined

Business capability is an acquired and organized "ability" within a company and takes hard work to put in place; it can therefore not be transferred because of the degree of organizational learning and organization that goes with it, and the set of business capabilities directly decide the overall organization’s competency, and how well they can execute strategy, deliver the value to the customers and build long term winning position.


It is true that business capability takes hard work to put in place and cannot be transferred. This is the challenge faced by business owners who have bought a running business from another.
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